Accounting Ratio Analysis: Unilever vs P&G Financial Performance

This report critically analyzes the application of accounting ratios to evaluate the financial performance of Unilever and Procter & Gamble (P&G). The study delves into the significance of profitability and solvency, crucial objectives for any business, and how accounting provides the necessary financial data for effective decision-making. The report explores the use of financial statements, including the income statement and balance sheet, and how ratio analysis serves as a key tool for interpreting these statements. It examines the theoretical background of financial analysis, covering financial statements, ratio analysis, and their role in performance evaluation and decision-making. The methodology includes the application of ratio analysis techniques to assess the performance of Unilever and P&G, aiming to identify areas for improvement. The study addresses research questions related to the utility of ratio analysis in evaluating business performance and its usefulness to stakeholders in their business decisions. The rationale emphasizes the use of financial statements from 2009/2010 to 2017/2018, obtained from the companies' annual reports. The literature review provides a background on the value of ratio analysis for assessing business performance. The report aims to demonstrate how ratio analysis aids managers, investors, and other stakeholders in making informed decisions about a business's past performance, current condition, and future potential.

A critical analysis of the use of accounting ratios to measure the financial performance in the
organizations
[Unilever Vs P&G]
Name of the Student
Name of the University

TABLE OF CONTENTS
Chapter 1: Introduction..............................................................................................................4
1.1 Background of the Study..................................................................................................4
1.2 Purpose of this Study.......................................................................................................5
1.3 Background of the Organisations.....................................................................................6
1.4 Aim and Objective of the Study.......................................................................................6
1.5 Research Questions..........................................................................................................6
1.6 Rationale of the Study......................................................................................................6
1.7 Structure of the thesis paper.............................................................................................7
Chapter 2: Literature Review.....................................................................................................8
2.1 Introduction......................................................................................................................8
2.2 Theoretical Background to Financial Analysis................................................................8
2.2.1 Concept of Financial Analysis..................................................................................8
2.2.2 Financial Statements used in Financial Analysis......................................................9
2.2.3 Financial Ratio Analysis.........................................................................................10
2.3 Performance analysis with financial ratios....................................................................11
2.4 Ratio Analysis 'Evaluating Past Performances And Predicting Future'.........................13
2.5 Financial analysis and decision making.........................................................................16
2.6 Conclusion......................................................................................................................17
Chapter 3: Research Methodology...........................................................................................18
3.1 Introduction....................................................................................................................18
Chapter 4: Data Analysis and Discussion................................................................................19
Chapter 5: Conclusion & Recommendations...........................................................................20
References................................................................................................................................21
Appendices...............................................................................................................................24

CHAPTER 1: INTRODUCTION
1.1 Background of the Study
The two essential objectives of each business are profitability and solvency. It is noted that
the concept of profitability is the capacity of a business to make benefit, while solvency is the
capacity of a business to pay out the debt amount (Brigham et al. 2016). Be that as it may, the
accomplishment of these targets requires proficient administration of assets of the business
through budgeting, planning, anticipating, control, and decision making. Additionally, the
qualities and shortcoming of the business should be distinguished and vital remedial
estimates connected. Strikingly, accounting gives data that encourages these capacities
(Kraft, 2014).
Essentially, accounting measures and conveys financial data required for decision– making.
Along these lines, the American Accounting Association (Hoskin, Fizzell, and Cherry, 2014)
characterized accounting as "the way toward recognizing, estimating and conveying financial
data to allow educated decisions and choices by the information from Income Statement and
the Balance Sheet." The Income Statement demonstrates the productivity or gainfulness or
operational consequence of a business, while the balance sheet report demonstrates the
dissolvability or budgetary position of a business (Grant, 2016).
The motivation behind setting up the financial statements of an organization is to pass on data
on the general execution and the situation of such an association to every invested individual.
In addition, stakeholders of these financial statements so as to uncover the money related
qualities and shortcomings of such an association so as to frame a conclusion as respect her
going-concern. Be that as it may, ratio examination is one of the courses through which the
fiscal statements could be deciphered (Thomas et al. 2016). While ratio analysis is
additionally a strategy utilized by money related administrators and speculators alike to look
at an organization's financial structure, conditions and exhibitions with guidelines winning in
such industry with the end goal of high-lighting enhancement or weakening in the pattern of
the business execution. Ehiedu (2014) characterized ratio analysis as the efficient results of
ratios from both inner and outer money related reports to abridge enter connections and
results so as to assess budgetary execution.
According to the managerial perspective, Performance examination assumes a crucial job in
giving such data to the administration, which is required for arranging, basic leadership and

control e.g. operational examination gives net edge, working cost analysis and overall
revenue. Resource the managerial traces resource turnover, working capital under stock
turnover, debt claims and payable. Productivity position demonstrates return on resources,
Earning Before Interest and Tax (EBIT) and profit for resources (Uechi et al. 2015). Easton
and Sommers, (2018) expressed that, "The executives can gauge the adequacy of its own
arrangements and choices, decide the suitability of embracing new approaches and strategies
and records to proprietors because of their administrative endeavours." Thus, the executives
ought to analyse a lot of data with regards to different assets put at the transfer of an
endeavour.
Then again, According to Brigham et al. (2016), "Significance of Performance lies for
proprietors/potential speculators should know effortlessly. The budgetary position of an
organization by profit for total assets, return on basic value, income per share, income per
share, profits per share, profit yield, profit inclusion, value income ratio, market to book
esteem, pay out/maintenance." The potential financial specialists of the business association
thus are keen on the present highlights.
1.2 Purpose of this Study
As indicated by Xu et al. (2014), "Accounting {or financial} ratio is an extent or division or
rate communicating the connection between one thing in a set fiscal reports and another thing
in the budget statements. Accounting ratios are the most amazing of all apparatuses utilized
in investigated and translating financial statements". In this way, ratio analysis includes
taking details of number (or things) out of budget reports and framing ratios with them, to
improve educated decisions and choices (Islam, 2014).
Subsequently it very well may be said that business choices of make or purchase, venture or
divestment, development or remorse, capital-association and recreation, etc. can't be
legitimately made without the guide of money related ratios (Marozzi, 2016). They offer sign
to the money related qualities and shortcomings of a business, and feature parts of a business
requiring further examination. Budgetary data gave in financial statements are valuable in
business choices. Notwithstanding, it must be noticed that financial statements are
unfortunate chore not an end in themselves (Kanapickienė, and Grundienė, 2015). In this
manner the utilization of financial statements in basic leadership isn't in every case simple
inferable from the issue of outlined nature of the data contained in budget statements, they

should be broke down and deciphered by methods for money related ratios to empower the
executives and partners comprehend them and settle on very much educated business choices.
Along these lines, this research paper is completed to indicate how ratio analysis encourage
supervisors, investors, financial specialists, banks, and different partners settle on educated
decisions and choices about the past execution, current condition, and fates capability of a
business.
1.3 Background of the Organisations
1.4 Aim and Objective of the Study
The aim of this study is to reveal how application of ratio analysis technique helps business
organisation to evaluate, predict and decision making.
The objectives of this study are as follows:
Objective 1: To apply ratio analysis technique in evaluating and prediction the performance
of Unilever and P&G as well as intensifying areas that regret improvement;
Objective 2: To assess whether ratio analysis useful to management investors, shareholders
and creditors in their business decisions;
1.5 Research Questions
Question 1: Is ratio analysis useful in evaluating and prediction the performance of a business
as well as intensifying areas that regret improvement?
Question 2: Is ratio analysis useful to management investors, shareholders and creditors in
their business decisions?
1.6 Rationale of the Study
The examination was directed with the assistance of information got from analysis of
financial statements. The examined financial reports are Unilever and P&G’s annual reports
of multi-year from 2009/2010 – 2017/2018 and the evaluated financial records are acquired
from the organizations’ annual report. The truth that industry average couldn't be
incorporated into the examination obliges the legitimacy of the analysis. Nonetheless, the
specialists trusted that the multi-year organisation performances from the examined annual
report offers far reaching data about the budgetary execution of both Unilever and P&G.

Notwithstanding that, the analysts attempt to gauge the performance of the retail segments
with reference to these organisations.
The researcher believes that this systematic research have its impact in offering
thoughtfulness regarding the financial performance of both the organisations, their
stakeholders and in addition investors of the money related articulations. Additionally it also
considered that such information will be valuable for the administration on setting of and
choice of suitable financing and working systems to be capable in the managing an account
industry. Notwithstanding that, it encourages the scientists to utilize their hypothetical
learning in to rehearse. Furthermore, the examination and outline work intended to assess the
financial execution of business organisations will be expected to fill in as a contribution for
future investors of both the organisations.
1.7 Structure of the thesis paper

CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
This part gives a review of past research on helpfulness of ratio analysis for assessing
business execution. It presents the structure for the case associations examination that
involves the primary focal point of the exploration depicted in this theory. The principle
motivation behind the writing audit work was to survey past analysiss on value of ratio
examination for assessing business execution. This was so as to scope out the key
information gathering prerequisites for the quantitative optional information examination, and
it shaped piece of the developing exploration configuration process. The methodology
received was in accordance with ebb and flow practice pursued by past research work. It is
currently viewed as worthy for analysts to acquaint themselves with existing examination
preceding gathering their own information, despite the fact that this negates the guidance of
grounded hypothesis as initially displayed (Drew, and Dollery, 2016). (This is talked about
further in Chapter 3.)
An energy about past work around there filled three further needs. To begin with, through
giving guidance in the development of information gathering devices, it made preparations
for the danger of over-burden at the essential information accumulation phases of the task.
Second, working the discoveries from surviving writing into a formal survey kept up all
through the examination a feeling of the subject's point of view. At long last, this movement
raised the open doors for articulating a basic analysis of the genuine "signifying" of the
information gathered when the information examination phases of the exploration were come
to. A scope of auxiliary information sources filled in as the key bibliographic apparatuses for
recognizing applicable work for survey.
2.2 Theoretical Background to Financial Analysis
2.2.1 Concept of Financial Analysis
Money related analysis comprises of instruments and systems connected logically to
ordinarily utilized fiscal reports, for example, accounting reports, salary explanations, and so
forth and other associated information to distinguish helpful data in settling on business
choices (Sarker et al. 2017). For venture purposes, it is utilized as a screening apparatus to
figure out which organizations merit putting resources into and as a determining device to
assess how well a business will perform later on. This analysis additionally has an indicative

capacity which is to see financing, contributing, working exercises and their productivity,
and, assessing the impact of administrative and different business choices (Khan, and
Khokhar, 2015).
2.2.2 Financial Statements used in Financial Analysis
Information for the procedure of budgetary examination is acquired from a scope of sources
inside created by the organization. These announcements can be arranged occasionally, by
and large every year, except should likewise be possible quarterly or for semi-annual
bookkeeping periods (Wahlen, Baginski, and Bradshaw, 2014). The most fundamental and
reduced money related record accessible to the overall population is the yearly report.
The yearly report incorporates the financial record, benefit and misfortune explanation,
income proclamation and articulation of changes in value. In Europe and the greater part of
the world (counting Ghana), these budget reports are arranged inside by the International
Financial Reporting Standards (IFRS) [15]. Likewise included are notes on the budget reports
for clarifications of the figures. The data showed in yearly reports is typically restricted to
what is recommended by law (Li, 2015). Any additional data is frequently utilized by just the
inside clients of financial examination.
The Balance Sheet
The financial record is a straightforward summarisation of a company's advantages, liabilities
and shareholders‟ value, ordered as needs be, toward the finish of each bookkeeping period.
It is the most fundamental of fiscal reports, along these lines, the most critical (Christian,
Matthew, and Jnr, 2014). The bookkeeping condition is the premise of this budgetary report:
Resources = Liabilities + Shareholders' value
The left-hand side of this condition (resources) indicates the financial assets controlled by the
organization. This incorporates structures, apparatus, money, financial balances, and so on
that are claimed by the organization. Resources could be partitioned into two sections; settled
and current resources, to give more detail (Weygandt, Kimmel, and Kieso, 2015).
The right-hand side indicates wellsprings of subsidizing for the advantages. It is likewise
partitioned into two sections. The liabilities identify with cases of loan bosses on resources of
the organization (Chandra, 2017). Investors' value is the aggregate of contributed assets to the
organization from the investors and amassed benefits which are not paid out to investors
(profits) otherwise called held income.

The drawback with the accounting report as portrayal of an organization's funds is that it
doesn't reflect in detail the genuine idea of an organization's structure. It additionally just
considers bookkeeping or book estimations of advantages which may be not quite the same as
current market esteem. Aside from that, benefits like representatives can't be spoken to by
figures to be determined sheet concerning their work involvement and capabilities.
The Income Statement
The Income Statement is likewise alluded to as the "Benefit and Loss Statement". It
essentially reflects money related execution of an organization between successive
bookkeeping periods or accounting reports (Lee, Park, and Lee, 2015). It demonstrates a
rundown of incomes, costs, misfortunes or benefits over that day and age, from working and
non-working exercises. The distinction among incomes and expenses is the financial
outcome, which is a misfortune when negative and a benefit or gain when positive.
The pay explanation gives more detail on the organization's exercises by appearing much was
spent doing what (use) and income accumulated from those exercises. This is critical in
choosing organization expense and profit strategy and furthermore causes clients to know
how much an action adds to the financial outcome (Rakicevic et al. 2014).
2.2.3 Financial Ratio Analysis
A money related ratio is the ratio of two financial factors taken from the asset report or pay
articulation (Purves, Niblock, and Sloan, 2015). In concentrate money related ratios, the
things considered are commonly dependent upon the expert's motivation playing out the
examination in any case. In other words, transient loan bosses for instance, are keen on the
company's short-run execution and liquidity as opposed to their capacity to finance long haul
liabilities.
Ratios in themselves are not especially noteworthy aside from when they are contrasted with
different ratios of a contender or to the business normal or to earlier years' ratios (Kou, Peng,
and Wang, 2014). Here, the elucidation of the ratios is most essential to decide the probable
heading of the organization. The elucidation is finished with respect to current organization
certainties (approach) and different ratios.
Examining money related ratios notwithstanding the past techniques for financial analysis are
urgent to understanding a company's present standing; where and why it is failing to meet

expectations or not, hence, giving supervisors a view to which territories to handle or
guarantee consistent dimension of execution to stay with the in a decent budgetary position.
There are four distinct sorts of financial ratios concerning which part of the organization the
expert or client is keen on. They are (Vogel, 2016):
 Liquidity ratios;
 Leverage ratios;
 Profitability ratios;
 Activity or Turnover ratios.
2.3 Performance analysis with financial ratios
Financial ratios are controlled by partitioning one number by another, and are normally
communicated as a rate. They empower entrepreneurs to look at the connections between
apparently random things and hence increase helpful data for basic performance. "They are
easy to ascertain, simple to utilize, and give an abundance of data that can't be gotten
anyplace else," (Bekaert, and Hodrick, 2017). Be that as it may, they included, "Ratios are
helps to judgment and can't replace understanding. They won't supplant great administration,
however they will improve the decision making process. They help to pinpoint territories that
require examination and help with building up a working system for what's to come.
Assessment of money related execution has a major significance in universe of economy and
it is the thing that the analysis of bookkeeping and organization centre extraordinarily around
(Finkler, Smith, and Calabrese, 2019). The money related reports which are set up in the
organization is considered as an imperative device to assess the financial execution where
dissecting these reports helps in recognizing the organization's purposes of shortcoming and
quality and work on the shortcoming to discover arrangements. The budgetary ratio is the
most widely recognized technique used to dissect the money related reports and has a precise
assessment to treat the purposes of shortcoming, viably and productively (Langfield-Smith et
al. 2017). The financial ratios don't include new data yet it is useful in clarifying the
connection between the factors to think of results. Ratio analysis is one of the primary money
related markers separated from fiscal report examination that is utilized to get a brisk sign of
an association's budgetary execution in a few key territories. Ratio Analysis as an apparatus
has a few imperative highlights (Kraft, 2014). The information, which are given by budget
reports, are promptly accessible.

The calculation of ratios encourages the correlation of firms which contrast in size. Ratios
can be utilized to contrast an association's budgetary execution and industry midpoints.
What's more, ratios can be utilized in a type of pattern analysis to distinguish territories
where execution has enhanced or crumbled after some time (Hoskin, Fizzell, and Cherry,
2014). Budgetary ratio analysis encourages us to see how gainful a business is, in the event
that it has enough cash to pay obligations and we can even tell whether its investors could be
cheerful or not. With the assistance of ratio analysis end can be drawn viewing a few angles,
for example, money related wellbeing, productivity and operational proficiency of the
endeavour (Grant, 2016). Ratio examination is a crucial methods for looking at the wellbeing
of an organization by concentrate the connections of key money related factors. An
association's ratios are ordinarily contrasted with the ratios of different organizations in that
association's industry or followed after some time inside so as to see patterns. Ratio analysis
represents the way toward deciding and showing the relationship of things and gathering of
things in the budget summary. It is a route by which money related solidness and wellbeing
of a worry can be judged (Ehiedu, 2014). Ratio analysis assumes an imperative job in the
financial field of settling on speculation and landing choice by banks, insurance agencies and
so forth and it disentangles the bookkeeping figures and features their interrelationship
between various fragments of the business.
To assess the execution of one firm, its present ratios will be contrasted and its past ratios. At
the point when money related ratios over some undefined time frame are looked at, it is
called time arrangement or pattern examination (Easton, and Sommers, 2018). It gives a sign
of changes and reflects whether the company's money related execution has enhanced or
weakened or continued as before over that timeframe. It isn't the essentially changes that
must be resolved, yet more critically it must be perceived that why those ratios have changed.
Since those progressions may be consequence of changes in the bookkeeping polices without
material change in the association's exhibitions. Another strategy is to contrast ratios of one
firm and another firm in a similar industry at a similar point in time (Greco, Figueira, and
Ehrgott, 2016). This examination is known as the cross sectional analysis. It may be
increasingly valuable to choose a few contenders which have comparative tasks and contrast
their ratios and the firm's. This examination demonstrates the relative budgetary position and
execution of the firm. Since it is so natural to locate the fiscal reports of comparative firms
through productions, this sort of examination can be performed so effectively.